I’m starting to think that every day some politician is going to come up with a new idea for how to make the current gas situation worse. California’s Attorney General provides today’s illustration.
Roseville Conservative is none too pleased with Attorney General Bill Lockyer’s (D-CA) plan to keep California gasoline prices low. The Attorney General’s press release explains the idea (hat tip
Attorney General Bill Lockyer today launched an investigation into possible illegal profiteering by gasoline retailers and oil companies in the wake of Hurricane Katrina, announcing he will subpoena records from refiners and probe the pricing practices of gas station owners.
Lockyer noted California receives little or no refined gasoline from the Gulf region, and no crude oil. He questioned whether disruptions in the oil and gasoline infrastructure caused by Hurricane Katrina, while no doubt severe, could legitimately explain any significant effect on California’s market. “Certainly, the storm cannot be used to justify gouging Californians while thousands of our fellow Americans suffer,” said Lockyer.
Let’s evaluate Lockyer’s logic from four different perspectives, considering from each perspective what it would mean if gasoline were to sell for $4 a gallon in Georgia (where Lockyer agrees there has been an effect) and $3 a gallon in California (where Lockyer believes there should be no effect).
First, let’s ask what would be the economically efficient thing to do if gas sold for $3 in California and $4 in Georgia. There are any number of steps you could take if you want to reduce your gas consumption, such as combining or reducing the number of trips, car-pooling, taking public transportation, and putting more of your mileage on your more fuel-efficient car if you have two vehicles. Nobody wants to do these things, and each of us has some maximal price we’d be willing to pay for gas before we start to make any of these changes. Some people made some of these adjustments when gas reached $2.50 a gallon, some won’t until the price reaches $4 a gallon, others won’t until the price reaches $6 a gallon. If another gallon of gasoline were shipped from California to Georgia and the price in California rose, the person in California who would end up doing without the gas would be the one who was willing to pay $3 for that gallon and no more. The person who would end up getting the extra gas in Georgia would be the person who was willing to pay $4 for that gallon and no more. Thus if the price in California were $3 and the price in Georgia were $4, it would be economically more efficient to ship some gasoline from California to Georgia, because the value of what somebody in California would give up is less than the value of what somebody in George would receive.
Second, let’s look at the issue from the perspective of fairness. Why should drivers in Georgia have to pay a dollar more for gas than drivers in California? Any Californians inclined to blame Georgians for living so close to the Gulf might want to check where the nearest earthquake fault is to their home, and ponder whether we might want Georgia to share some of their gas with us if we get into a similar situation some day down the road. The principle of fairness would seem to suggest that the whole country, not just those living closest to the hurricane damage, should help share the burden.
Third, let’s look at the issue from the perspective of what would maximize the profits of those who sell the gasoline. If gas sells for $3 a gallon in California and $4 a gallon in Georgia, obviously anybody could make a profit by buying the gas in California and transporting it to Georgia. The natural consequence of profit-maximization by firms is to
reduce the price differences across different regions. In other words, the inevitable result of profit-seeking behavior would be to distribute gasoline across the country in a way that achieves the efficiency and fairness objectives described above, unless someone like the California Attorney General intervenes.
Finally, let’s look at this question from the perspective of what would most help Bill Lockyer politically. The majority of California voters have not taken a principles of economics course and don’t understand points (1) through (3) above– Exhibit A: They elected Lockyer to be attorney general. Voters are frustrated by high gas prices and are anxious to find a scapegoat and a leader who will claim to do something about the problem. Besides, it is Californians, not Georgians, whose votes Lockyer cares about.
When you look at it from all four perspectives, I’m sure you’ll agree with me that Lockyer has made a very smart move.